Words from the (Investment) Wise for the Week That Was (November 23-29, 2009): Part II

Asha Bangalore (Northern Trust): Low mortgage rates and tax credit lift
sales of existing homes
"Sales of all existing homes rose 10.1% to an annual rate of 6.1 million units
in October. Attractive mortgage rates and the first-time home buyer tax credit
of $8,000 helped to boost sales of existing homes. The tax credit program has
been expanded and extended to April 30, 2010.

"Sales of single-family existing homes advanced 9.7% to an annual rate of
5.33 million units in October. Sales of single-family existing homes have moved
up nearly 32% from the cycle low of 4.05 million homes in January 2009. The
peak of single-family existing home sales was in September 2005 (6.34 million
units).

"The median price of an existing single-family home declined 1.6% to $173,100
in October from the prior month and it is down 6.8% from a year ago. The year-to-year
decline of the median price shows a significant moderation, with the October
reading the smallest since June 2008.

"As a result of the low mortgage rates and the first-time home buyer tax credit
of $8,000, the supply of unsold single-family existing homes in October dropped
to nearly 7-month supply, which is slightly below the historical median of
7.2-month supply.

"The important implication is that the declining trend of the number of unsold
existing homes should establish price stability. Additional home sales will
be possible as the economy recovers and hiring recovers."

Clusterstock: The "distressing" gap between new and existing home sales
"This morning's existing home sales number showed that sales surged in October
by a surprising 10.1%. But new home sales continue to remain quite weak.

"Today's chart, showing the 'distressing' gap between the two measures, comes
courtesy of Calculated Risk, which explains:

"'The initial gap was caused by the flood of distressed sales. This kept existing
home sales elevated, and depressed new home sales since builders couldn't compete
with the low prices of all the foreclosed properties.

"'The recent spike in existing home sales was due primarily to the first time
homebuyer tax credit.

"'But what matters for the economy - and jobs is new home sales, and new home
sales are still very low because of the huge overhang of existing home inventory
and rental properties.'"

MoneyNews: Nearly 11 million US homes underwater
"Some experts say the housing market has bottomed, but one statistic indicates
otherwise.

"The portion of US homeowners who are 'underwater' on their loans - that is,
they owe more on the mortgage than the home is worth - surged to 23 percent
in the third quarter, or almost 10.7 million households, according to First
American CoreLogic, a real estate research firm.

"Many of the underwater homes will end up in foreclosure or on the already
bulging market of homes for sale.

"Of the 10.7 million homes underwater, nearly half have a mortgage that is
at least 20% percent higher than the home's value, according to First American.

"More than 520,000 of these homeowners are in default on their mortgages.

Clusterstock: We're still generating too many negative equity mortgages
"In Washington, DC, the prevailing view these days is that unemployment is
now the leading driver of mortgage defaults. This is one reason you can expect
to see the next stage of the government's attempt to rescue the housing market
focus on saving jobs.

"But a new study out of Amherst Securities indicates that negative equity
is by far the best default predictor of defaults. If that view is correct,
the fact that we are still producing mortgages that quickly slip into negative
equity should be terrifying. And, in fact, much of the recovery in the housing
market appears to be built on thinly capitalized mortgages subsidized by low
loan-to-value FHA guaranteed mortgages and the home-buyer tax credit.

"As the chart below shows, even home buyers who took out mortgages as late
as this year are finding themselves with negative equity at historically high
rates. We've come down from the worst levels of the housing boom but we are
still well above healthy levels.

"In short, we may be witnessing a policy mistake of stunning proportions as
lawmakers and regulators focus on job creation while ignoring the still problematic
loan-to-value ratios in the housing market."

"'Disregard them,' says Barry Ritholtz, CEO of Fusion IQ, who notes the existing
home sales number was juiced by sales of cheap condos and various government
programs. Meanwhile, the Case-Shiller results were below expectations.

"We are 'not even close' to a bottom in housing, says Ritholtz, who estimates
national house prices remain 15-20% overvalued, based on the traditional metrics
of: median income-to-median sales price, the cost of owning vs. renting, and
housing stock as a percent of GDP.

"'Until we start seeing a healthy housing market that can stand on its own,
without government props, without distressed properties selling 60% off peak
levels - that's how you know the bottom is in,' says the blogger and Bailout
Nation author.

"The likely best-case-scenario for housing is several years of sideways action
for prices, wherein population growth and a firmer economy combine to sop up
the still huge inventory of homes on the market.

"'And that's if we're lucky,' Ritholtz says, citing the lackluster environment
for jobs and wages, as well as CoreLogic's analysis that 23% of all US mortgage
holders are under water. With so many Americans owing more money than their
homes are worth, the recent rise in foreclosures and so-called jingle mail
is 'not nearly done', he warns.

Clusterstock: US weekly jobless claims the lowest since September 2008
"The Department of Labor reported today [Wednesday] that initial jobless claims
for the week ending November 21 fell 35,000 on a seasonally-adjusted basis
from the previous week.

"They rose 68,080 on a not-seasonally-adjusted basis, but this basically means
that jobless claims rose less than normal for this time of year. Seasonal adjustments
are widely used to spot overall unemployment trends since the employment market
is indeed seasonal.

"As shown below, at 466,000, this most recent seasonally-adjusted claims number
represents the best data point we've had since the week of September 13, 2008.

"Regardless of the potential for static in the weekly numbers, or errors due
to seasonal adjustments, it's now pretty clear that the overall rate of new
jobless claims has indeed slowed substantially."

Angry Bear: Unemployment claims - 1975, 1982-83 and 2009
"The weekly initial unemployment claims are widely reported and various charts
show how they have been falling since the peak. But it is hard to compare the
drop in claims this cycle compared to after other severe recessions in the
standard charts showing claims over time.

"So to make such comparisons easier I though readers might find a chart showing
claims after the 1974 and 1982 recessions and this recession on the same scale."

Asha Bangalore (Northern Trust): Consumer Confidence Index moves up slightly
"The Conference Board's Index moved up to 49.5 during November from 48.7 in
the previous month. The Present Situation Index (21.0 vs. 21.1 in October)
fell, while the Expectations Index rose to 68.5 in November from 67.0 in the
prior month. The number of respondents indicating that 'jobs are hard to get'
rose to 49.8 from 49.4 in the prior month, while those noting that 'jobs are
plenty' fell to 3.2 from 3.5 in September. The main message is that hiring
remains weak."

MoneyNews: Dreman - brace for 10 percent inflation
"David Dreman says investors should be prepared for high inflation rates -
as high as 10 percent - to start within the next three years, and that the
Obama administration is powerless to stop it.

"Dreman, the well-known contrarian investor and CEO of Dreman Value Management,
told Fox Business that the stock market will see a correction, although 'it's
anybody's guess' when that correction will occur.

"He said inflation could rise to be as high as 8 percent to 10 percent within
the next three years.

"Dreman advises investors to hold onto their current stocks and 'ride through'
the correction. He also advises investors to stay out of long-term bonds because
they will take a hit.

"Instead, investors should go for very short-term bonds, equities, and real
estate, he said.

"Dreman predicts that interest rates will remain low since 'no administration'
will attempt to raise them with high unemployment rates. He said the current
administration is both trapped and powerless.

"Dreman also said that gold is currently undervalued, despite breaking records
daily."

Bloomberg: Late card payments rose in October, Moody's reports
"US credit-card delinquencies climbed last month to the highest level since
February as five of the six biggest card lenders posted increases, Moody's
Investors Service said.

"Loans at least 30 days overdue, a signal of future defaults, rose to 6.12
percent in October from 5.97 percent in September, Moody's said in a report
dated Nov. 20 and distributed today. So-called early-stage delinquencies, payments
30 to 59 days late, were unchanged at 1.66 percent.

"Banks typically write off card loans after 180 days, and defaults fell last
month to 10.04 percent from 10.72 percent in September, reflecting lower delinquency
rates earlier in the year. Credit-card defaults and delinquencies tend to track
US unemployment, which climbed to 10.2 percent in October, the highest since
1983.

"'Weak job creation, elevated bankruptcies and rising unemployment continue
to weigh on results,' John McDonald, an analyst with Sanford C. Bernstein & Co.,
said in a November 17 research note. 'It still feels too early to declare victory.'

"Write-offs may peak at 12 percent to 13 percent in 2010, Moody's analysts
Will Black and Jeffrey Hibbs said in the report."

Bloomberg: Strauss-Kahn says half of bank losses are undisclosed
"Dominique Strauss-Kahn, managing director of the International Monetary Fund,
talks about bank losses and the outlook for a global economic recovery. Strauss-Kahn
answers questions from delegates at the Confederation of British Industry's
annual conference in London."

Financial Times: S&P raises fears over health of some banks
"A study by Standard & Poor's has raised questions over the financial strength
of some of the biggest banks ahead of new rules that could require them to
raise more funds.

"The analysis by S&P showed that HSBC is the best capitalised bank in
the world, while Switzerland's UBS, Citigroup of the US and several of Japan's
biggest banks are among the weakest.

"The ranking of 45 of the world's leading banks will unnerve investors, highlighting
once again the capital shortfall that institutions still need to make up over
the coming years.

"Although some banks will be able to top-up capital through retained profits,
analysts expect a string of rights issues from weaker banking groups as they
try to raise tens of billions of dollars.

"S&P's risk-adjusted capital (RAC) ratios - a measure of balance sheet
strength - foreshadow the new capital ratio regime expected to be set by the
Basel committee on banking supervision early next year.

"Its report, published on Monday, gave HSBC a 9.2 per cent ratio, compared
with barely 2 per cent for the likes of UBS, Citigroup and Mizuho."

The Wall Street Journal: Banks scramble as debt comes due
"Banks have spent the past year dealing with a mountain of bad assets. Now
attention is turning to trillions of dollars of debt they have maturing over
the next few years.

"Banks unable to maneuver around the challenge could be forced to refinance
their debt at sharply higher costs.

"The situation was caused by banks engaging in cheap borrowing during the
credit-market boom that began in the middle of the decade and lasted through
2007. As financial markets hit crisis mode, banks were propped up by government
guarantees that enabled them to keep selling debt - but with much shorter maturities.

"About $10 trillion of debt comes due by the end of 2015, including $7 trillion
by 2012, according to Moody's Investors Service, which highlighted growing
concerns about the banks' looming liabilities in a report this month.

"The life span of bank debt has shrunk to historically low levels, forcing
banks to deal with the problem sooner rather than later. Globally, the average
maturity of new debt rated by Moody's fell from 7.2 years to 4.7 years in the
past five years.

"'We thought that we should send a signal' of warning, said Jean-Francois
Tremblay, a Moody's analyst and one of the report's authors.

"The problem is especially acute for US and UK banks, which have been among
the hardest hit by the financial crisis. In the US, banks have seen maturities
drop to 3.2 years from 7.8 years in the past five years. In the UK, the average
maturity for new debt fell to 4.3 years from 8.2 years, Moody's said."

Financial Times: Better climate for hedge funds
"The hedge fund sector looks to be going through the early stages of recovery,
with industry flows turning positive and redemptions largely normalising to
historical levels, says Huw van Steenis, head of banks and financials research
at Morgan Stanley.

"'Next year is likely to be a pivotal year for hedge funds, with the sector
set to benefit from the rise in demand for better risk adjusted returns, the
migration of talent from investment banks and trading off the back of a successful
2009,' he says.

"Mr van Steenis believes sovereign wealth funds, foundations and pension funds
have overtaken endowments and high net worth hedge fund of funds as the largest
source of inflows - and thinks the market is underestimating the potential
upsurge in demand for absolute return funds from private clients and smaller
institutions.

"'In the UK, in the third quarter alone, there were $2.1bn of inflows into
absolute return funds - three times that in the first quarter. Our base case
estimates that global assets under management in the sector will reach $1,750bn
by the end of 2010 - where we were in the first half of 2007 - although we
see risks posed by performance, regulation and reputational issues.

"'The outcome of US/EU regulatory changes remains uncertain, but growing pragmatism
should be the order of the day; we estimate that hedge funds funded 30-40 per
cent of capital raised by US and European banks this year.'"

Bespoke: Sovereign default risk
"Below we highlight current credit default swap prices and the year-to-date
change for the sovereign debt of 39 countries. As shown, default risk has declined
for every country except Japan in 2009, including Dubai."

Yahoo Finance - Tech Ticker: A bad economy could spell good news on Wall
Street for years to come
"The economic recovery isn't as strong as first thought. Revised GDP figures
released this morning [Tuesday] show the economy grew at a 2.8% annualized
pace in the third quarter, less than the 3.5% initially reported. The revision
was in line with expectations but shows the economy didn't have as much momentum
heading into the fourth quarter as previously believed.

"Unlike Wall Street traders, consumers seem to know the recovery is 'anemic',
as Barry Ritholtz, CEO of Fusion IQ, describes it. The Conference Board's latest
confidence survey shows Americans feel worse about the current economic situation
than they did in March, when the stock market was making new lows.

"What's driving the disconnect between Wall Street and Main Street?

"Ritholtz says it's a classic example of bad news being good news on Wall
Street. 'We're in a cycle that's not based on profitability, not based on expanding
economy but based on all sorts of government supports,' he says. 'Bad news
is going to be good news for the next couple of quarters probably.'

"That's because low interest rates and liquidity provided by the Federal Reserve,
coupled with government stimulus are enticing traders to buy into the market.
'Cash is trash,' says Rithotlz, who remains bullish on stocks.

"Ritholtz is confident that eventually fundamentals will prevail and thinks
the market will take a hit once the economy shows signs of improvement, meaning
the 'extraordinary' stimuli can be removed.

"But predicting the timing is anyone's guess. 'You could have this disconnect
that goes on for not days, weeks or months but years and years,' he says.

"So, in the meantime, Ritholtz - who correctly predicted the 2008 crash and
told Tech Ticker's audience 'the mother of all bear market rallies', was upon
us in March - is still long stocks and likes commodities (thanks to a weak
dollar) and emerging markets."

Financial Times: Getting technical
"There is one group of investors that has few doubts about the direction of
the US stock market. Technical analysts - who scour price moves in charts for
patterns of behaviour that they think will be repeated and drive future action
- see plenty of signals that justify a continued move higher in the S&P
500 index of US stocks.

"Although there are many reasons to doubt the relevance of technical analysis,
there are many investors who do trade on these signs. Indeed, much of the computer-driven,
high-speed trading that has become a feature of stock trading uses such analysis
to programme trades. At the very least, it is important to be aware of the
key price levels that technical analysts are targeting.

"At its simplest in terms of technical signals, a rising support line connects
the dips seen in the S&P 500 since it started its rally in March. This
backs the idea that such a support will continue to prop up prices after any
dips.

"In terms of specific levels, the most widely watched ones are those that
cluster round key ratios identified by the mathematician Fibonacci in the 13th
century. Under these ratios, technical analysts believe that once markets have
rallied 50 per cent from a low, they tend to progress to a level marking a
61.8 per cent retracement.

"Taking the 2007 S&P 500 high of 1,576 as the top and the March 2009 low
of 667 as a bottom, the eyes of these analysts are on the S&P reaching
1,121 - a level that would mark a 50 per cent retracement of the decline from
the peak. The subsequent 61.8 per cent retracement level would be 1,229.

"Technical analysts similarly argue that charts signal continued dollar declines
and rises in gold, silver and oil prices. With fundamental factors sending
mixed pictures, more traders may grasp for the cryptic clues on short-term
market moves provided by technical analysis."

Bespoke: Where are the Financials?
"Probably the main reason why the S&P 500 has struggled to take out old
highs in recent weeks is the performance of the Financial sector. It's actually
surprising that the market is where it is given how poorly the Financials have
done. As shown in the first chart below, the S&P 500 Financial sector can't
even get above its 50-day moving average, much less test its bull market highs
from a month or so ago.

"The Financials led us into and out of the bear, and it's hard to imagine
the overall market continuing its bullish pace over the next few months without
a resurgence in the Financials. The question right now is whether to treat
the stagnation as a bullish signal to gain exposure to the sector or a bearish
signal to sell the broad market."

Bespoke: Goldman can't get out of its own way
"While there probably aren't a lot of people shedding tears over it, the stock
of Goldman Sachs (GS) can't seem to get out of its own way. We've highlighted
the relative weakness in this stock several times over the last few weeks,
so this shouldn't come as any surprise, but GS is now on pace to close at its
lowest levels since early November.

"Politicians in Washington and conspiracy theorists may be rejoicing in Goldman's
misery, but if there's one thing Goldman employees can be thankful for it is
that with the stock lagging the overall market, the intensity of public backlash
directed towards the company seems to have abated. Next thing you know, the
conspiracy theorists will claim that 'evil' Goldman is purposely making their
stock weak just so they can buy back the stock at lower prices."

"He says that while a few narrow real estate markets may be starting to look
pricey, equity markets for the most part appear to be at or near fair value.

"'The bigger problem facing a number of key Asian economies is the extent
to which their currencies are pegged to the dollar, and the Federal Reserve's
very stimulative policy stance.

"'The monetary stimulus and capital flows these pegs are engendering are forcing
[Asian] authorities to adopt more restrictive prudential regulations in an
effort to avoid the inevitable inflation pressures and asset bubbles this arrangement
will bring.'

"Mr Spencer says the possibility that this extends to capital controls cannot
be ruled out - but argues that they would be used only as a last resort if
monetary control could not be established through currency appreciation, rate
hikes and sterilisation.

"'We would anyway dispute the argument that capital flows or asset prices
are at extremes. Asian equity prices may have risen sharply since the beginning
of the year, but the regional index is only about 5 per cent higher than it
was last summer. In a similar vein, while property prices in general are going
up, it is only the luxury end that is 'frothy'.'"

Reuters: Templeton's Mobius eyes Libyan market
"Templeton Asset Management fund manager Mark Mobius said he was eyeing private
equity and other investments in Libya and said the stock market had enormous
potential for growth.

"Mobius, a prominent emerging market investor, told Reuters at the launch
of a new Egyptian brokerage office in Tripoli he saw potential for tourism,
infrastructure and telecoms investments.

"Libya, holder of Africa's largest oil reserves, has attracted a wave of interest
from Arab and international companies, operating mainly in energy and construction,
since most international sanctions were lifted in 2004.

"'This market is very exciting now because the government is embarking on
a privatisation programme to list many of the state enterprises. Although the
market is small now, the potential for growth is enormous,' Mobius said, speaking
late on Sunday.

"Libya has said it plans to sell shares in four state firms via initial public
offerings (IPOs) in 2010 and will enact a law next year offering tax breaks
to companies listing on the stock exchange in an attempt to get more Libyans
to invest.

MoneyNews: Forecasters see dollar decline next year
"The top performing forecasters in Bloomberg's survey of 46 firms predict the
dollar will continue falling next year.

"The sluggish economic recovery and exploding government debt burden will
weigh on the currency, they say.

"Standard Chartered bank, which placed first in estimating the dollar-euro
rate over the 18 months ended June 30, sees the euro rising 5.5 percent against
the dollar next year, to $1.58.

"'History tells us the dollar shouldn't start rising on a sustained basis
until 12 months after the Fed starts to lift rates,' Callum Henderson, the
bank's head of foreign exchange strategy told Bloomberg.

"'It'll take time to drain the oversupply of dollars from the market. The
dollar will remain weak until the Fed's rates rise above the competitors.'

"All three of the top performers in Bloomberg's survey see the dollar falling
against the euro next year.

Richard Russell (Dow Theory Letters): Why gold?
"Let's say you're a multimillionaire. You're seriously worried about what to
do with your millions in savings. You don't want to keep your money under your
mattress or in your Frigidaire, so where should you keep it? US T-bills are
now in a state of zero or even negative interest - you pay the government to
hold your money, but you're SAFE. T-bills have behind them the full faith and
credit of the United States. Great, but, now you're thinking the unthinkable
- How good is the full faith and credit of the US? There are rumors that the
credit rating of the US could actually be lowered. And with the massive unfunded
debt of the US, that could happen, and worse - the dollar could cave in. What
to do?

"And you ask yourself, 'What's safer than T-bills or even top-grade foreign
short-term debt?' The answer is that there is one item that's safer - gold.
Gold represents intrinsic value in and of itself and by itself. Gold needs
no nation to back or guarantee its value. Gold is no single nation's liability.
Furthermore, gold has no maturity date and gold is so safe that it doesn't
need to pay interest to those who hold it. You decide to put your savings into
gold rather than T-bills. And unlike T-bills today, gold doesn't depend on
anyone's 'full faith and credit'.

"The fact is that the so-called 'opportunity cost' of buying or holding gold
is zero today. T-bills pay you nothing. The fact is that it's cheaper, safer,
and it makes more sense to hold gold at this time than at almost any time in
my memory. And a lot of knowledgeable, big money investors are doing just that
- buying and holding gold for safety and as a store of value."

International Monetary Fund: IMF announces sale of 10 metric tons of gold
to the Central Bank of Sri Lanka
"The International Monetary Fund (IMF) announced today the sale of 10 metric
tons of gold to the Central Bank of Sri Lanka. The sale was conducted on the
basis of market prices prevailing on November 23, 2009 with proceeds equivalent
to US$375 million. This transaction is part of the total sales of 403.3 metric
tons approved by the Executive Board in September 2009, and it adds to the
total of 202 metric tons already sold to the Reserve Bank of India and the
Bank of Mauritius."

Financial Times: Gold rush forces US to clip Eagle sales
"The rush by retail investors into gold has forced the US government to suspend
sales of the world's most popular bullion coin, the American Eagle, after running
out of inventories.

"The shortage, the second since the start of the financial crisis in August
2008, is the latest sign of investors seeking a safe haven into bullion amid
the US dollar woes. Safe-haven buying spurred by concerns about the health
of Wall Street and a spike in inflation due to a lax monetary policy have also
benefited gold sales.

"'The US Mint has depleted its current inventory of 2009 American Eagles one-ounce
bullion coins due to the continued strong demand,' the mint said in a statement
late on Wednesday. It added that selling will resume 'once sufficient inventories
... can be acquired to meet market demand'.

"The US Mint has sold about 1.19m ounces of American Eagles so far this year,
up almost 75 per cent from the same period last year and on track to be the
highest annual volume in ten years, according to official data. Sales of American
Eagle's silver coins have hit 26m ounces, the highest level in at least 23
years."

David Fuller (Fullermoney): Gold's advance is not a bubble
"Intrinsic or not, I think value is in the eye of the beholder. The Fullermoney
view for the last nine years is that gold is being gradually remonetised in
the eyes of investors. That process has accelerated over the last year because
we have witnessed nothing less than the greatest monetary reflation in history.

"What might we expect from gold over the short to medium term?

"Technically, gold looks temporarily overstretched and $1,200 is a minor psychological
level. Consequently, we could easily see a short-term reaction and consolidation
of perhaps $30 to $50 before this secular bull market powers on into 1Q 2010.
If the consistency of the two earlier cycles commencing in September 2005 and
September 2007 is maintained, gold should reach at least $1,300 between March
and May of next year.

"I do not think that gold's current advance is a bubble, although it is likely
to become one eventually. A genuine bubble, as opposed to a market that happens
to be rising at a time when most people are underinvested and therefore envious
observers, will include gold fever of the sort we have not seen since 1979-1970.

"To put recent events in perspective, bullion consolidated for eighteen months
prior to the last three month's gains. It has rallied about $200 since the
September breakout, which is approximately $100 less than the two earlier advances
referred to above. Comparing those three moves, gold's recent percentage move
is clearly less to date than we saw on the two earlier advances. Lastly, the
Amex Gold Bugs Index has yet to clear its 2008 high. This does not suggest
a bubble to me."

Financial Times: Oil prices are too high
"An oil price at $80 a barrel is inconsistent with supply and demand dynamics,
inventory levels and the current macroeconomic environment, says Alexander
Redman, strategist at Credit Suisse.

"'US gasoline demand is at lower levels than this time a year ago, while distillate
demand remains well below the five-year range and jet plane storage continues
to climb. Overall, US oil demand is still down by 3 per cent year-on-year.'

"At the same time, he says, US petroleum inventories are among the highest
levels of this decade and a further 100m barrels of oil is being held globally
offshore in tankers.

"Mr Redman says an examination of the longer-term association between the
real oil price and global spare oil capacity indicates two important factors.

"'First, the oil price only tends to spike up once spare capacity falls below
the critical 2-3 per cent level - the International Energy Agency does not
project this occurring again until 2014. Second, using the IEA's estimate of
2010 spare capacity of about 8 per cent, the oil price would typically be closer
to $40 a barrel.

"'For now, the market appears to be pricing in the return to a tighter supply
environment well into the next decade and disregarding the current glut in
supply.

"'Going forward, the Credit Suisse oil team is targeting $70 a barrel for
WTI - and $68 a barrel for Brent Crude.'"

Financial Times: Eurozone PMI growth reaches two-year high
"The eurozone recovery is gathering pace in the final months of 2009, but warning
signs of weaker growth next year have appeared.

"Purchasing managers' indices for the 16-country region on Monday showed private
sector activity expanding this month at the fastest rate in two years, with
France and Germany powering the revival. However, the survey also pointed to
a loss of momentum in coming months.

"The results add to evidence that the eurozone has returned to expansion,
but that it risks seeing growth fade once government and central bank support
measures are ended. The results are likely to add to policymakers' wariness
about the outlook for 2010.

"In a speech in Madrid, Jean-Claude Trichet, European Central Bank president,
said: 'We can spot a number of signs of stabilisation. But the crisis has debilitated
the real economy ... [and has] proved so deep because it has deprived our citizens
of confidence.'"

"The eurozone recession ended in the third quarter, when gross domestic product
rose by 0.4 per cent.

"November's purchasing managers' indices suggest the fourth quarter will see
growth of a similar pace or faster. The composite index, covering eurozone
services and manufacturing, reached 53.7 in November, up from 53.0 in October,
making it the fourth consecutive month of expansion.

"However, Chris Williamson, chief economist at Markit, which produces the
survey, said November 'also saw the first signs of growth peaking'. New orders
grew at a slower rate than in October, especially in the service sector. Job
losses remained high and 'highlighted the fragility of the recovery', he added."

Financial Times: Japan says economy back in deflation
"The Bank of Japan moved towards a neutral stance on the risk of inflation
on Friday even as the government formally declared that the world's second-largest
economy has entered deflation for the first time since 2006.

"The government's declaration sets the scene for heightened tension with the
bank, which has been resisting public calls by politicians for greater aggression
in the fight against deflation.

"'We want the BoJ to extend support on the monetary policy front in overcoming
deflation,' said Naoto Kan, deputy prime minister. Hirohisa Fujii, finance
minister, and Shizuka Kamei, financial services minister, have also called
on the central bank to do more.

"The bank's policy board kept interest rates on hold at 0.1 per cent on Friday,
but said 'there is a possibility that inflation will rise more than expected'
due to higher commodity prices, offset by a risk it could fall due to lower
public expectations for medium- to long-term inflation. In previous statements
it only mentioned the risk of inflation declines.

"Consumer prices were down by 2.2 per cent on the previous year in September,
or by 1.0 per cent excluding fresh food and energy. Although year-on-year inflation
first turned negative in February, the government only now declared that 'the
Japanese economy is in a mild deflationary phase'."

Financial Times: Japanese export growth eases recession fears
"Strong demand from China and other Asian economies lifted Japanese exports,
which last month fell at their slowest rate for a year, boosting hopes that
the economy will continue to report healthy growth.

"In October, exports fell 23.2 per cent from a year earlier, compared with
a 30.6 per cent decline in September, according to data released by the Ministry
of Finance on Wednesday. The figure represented the smallest drop since October
2008, when exports fell 7.9 per cent.

"On a seasonally adjusted basis, the value of shipments rose for the third
straight month by 2.5 per cent from September.

"Junko Nishioka, economist at RBS in Tokyo, said the fall in exports last
month was smaller than expected and marked a 'clear improvement'.

"'It shows how rapidly the growth rate is improving. Overall, we can safely
say that the worst is over and downside risk is limited,' said Ms Nishioka.

"Japan's economy grew at an annualised rate of 4.8 per cent in the third quarter,
fuelled by a mix of stimulus-induced domestic demand, a bounceback in exports
and rebuilding of inventories."

Financial Times: China banks prepare to raise capital
"China's banks are preparing to raise tens of billions of dollars in additional
capital to meet regulatory requirements following an unprecedented expansion
of new loans this year, according to people familiar with the matter.

"China's 11 largest listed banks will have to raise at least Rmb300bn ($43bn)
to meet more stringent capital adequacy requirements and maintain loan growth
and business expansion, according to estimates from BNP Paribas.

"China's banking regulator has warned it would refuse approvals for expansion
and limit banking operations if lenders did not meet new capital adequacy requirements,
a move that has prompted the country's largest state-owned banks to prepare
capital-raising plans for next year and beyond.

"Expectations of giant cash calls from the listed Chinese banks spooked investors
on Tuesday, helping to send the benchmark Shanghai Composite Index down 3.45
per cent on a day of record turnover on the Shanghai and Shenzhen markets.

"Following government orders to prop up the domestic economy in the face of
the global crisis, Chinese banks extended a record Rmb8,920bn in loans in the
first 10 months of the year, up by Rmb5,260bn from the same period a year earlier.

"This unprecedented loan expansion resulted in a record fall in their core
capital adequacy rates from just over 10 per cent at the end of last year to
8.89 per cent by the end of September, a drop that worries regulators."

Infectious Greed: China leaps to second spot in global science
"The latest Thomson ISI science data shows that China has leaped to second-spot
worldwide in academic science, as measured by papers produced. The US still
leads the way, at 340,000 publications per year (not shown), but China could
surpass US production within five years at current rates of relative growth.

"Of course, paper production is only one measure. Citations matter at least
as much, and that isn't captured here. Nevertheless, it is striking stuff."

"'I think right now the markets have run too fast too far, liquidity-driven
and they have moved out of alignment with what I think is a very sluggish underlying
recovery in the global economy,' Roach told CNBC.

"Roach says the Chinese have focused too much on its investment growths and
depended too much on export sales.

"'The crisis is a wake-up call that the external demand from the West won't
be there for a long time,' Roach says, pushing China to find new sources of
demand.

"'Korea has shifted its major external market from America to China, as has
Japan ... so there's a lot riding on the ability of the Chinese to stimulate
this new source of internal demand that could benefit not just the Chinese,
but the Koreans and the Singapore too,' Roach notes.

"Overall, however, Roach remains bullish on China, seeing an upside in its
services sector over the next 5 to 7 years."

With 25 years' experience in investment research and portfolio management,
Dr Prieur du Plessis is one of the most experienced and well-known investment
professionals in South Africa. More than 1 000 of his articles on investment-related
topics have been published in various regular newspaper, journal and Internet
columns. He also published a book, Financial Basics: Investment, in 2002.

Prieur is chairman of the Plexus group
of companies, which he founded in 1995. Previously he was general manager:
portfolio management at Sanlam, responsible for the management of investment
portfolios with total assets in excess of $5 billion.

Plexus is a pioneer in the mutual fund
industry and has achieved a number of firsts under Prieur's leadership. These
include the authoritative Plexus Survey, a quarterly analysis of the consistency
of the performance of unit trust management companies, the Plexus Offshore
Survey, the Plexus Unit Trust Indices, and the PlexCrown Fund Ratings.

Plexus is the South African partner
of John Mauldin, American author of
the most widely distributed investment newsletter in the world, and also has
an exclusive licensing agreement with California-based Research
Affiliates for managing and distributing its enhanced Fundamental Index™ methodology
in the Pan-African area.

In 2001 Prieur received the Santam/AHI Business Leader of the Year award for
corporate leadership, business acumen and entrepreneurial flair. He was also
profiled in the book South Africa's Leading Managers (2006). Plexus received
the AHI/Old Mutual Enterprise of the Year award in 1997 and was also included
in the book South Africa's Most Promising Companies (2005).

Prieur is 52 years old and lives with his wife, TV producer and presenter
Isabel Verwey, and two children in Welgemoed, Cape Town. His recreational activities
include long-distance running, motor cycling and reading. He belongs to the
Cape Town Club, Johannesburg Country Club, Gordon's Bay Yacht Club and Swiss
Social & Sports Club.